For original equipment manufacturers (OEMs), the installed base is more than a record of equipment in the field – it’s a critical driver of ongoing business value. As markets for new equipment fluctuate and competition intensifies, leading manufacturers are shifting their focus to the financial advantages of installed base management. By prioritizing aftermarket services and building recurring revenue streams, OEMs can achieve higher profit margins, greater revenue predictability, and improved capital efficiency. This approach is not just a defensive strategy, but a proactive way to build a resilient, growth-oriented business.

Higher Profit Margins in Aftermarket Services

One of the most compelling financial advantages of focusing on the installed base is the consistently higher profit margins available through aftermarket services. Research from McKinsey & Company indicates that, for many OEMs, margins from services such as maintenance, spare parts, and technical support can be up to four times greater than those from new equipment sales. Bain & Company’s analysis shows that while services often represent just 20% of total revenue for industrial manufacturers, they can generate as much as 50% of total profits.

This profitability gap is echoed by BCG, which reports that gross margins for aftermarket services typically stand at double those of new equipment sales-often in the 30–50% range compared to 15–25% for new units. For complex, high-value assets like turbines and engines, service-related EBIT margins can be four times higher than those from original equipment sales. These findings make clear that aftermarket services are not just an add-on, but a core profit engine for OEMs.

Recurring Revenue Through Service Contracts and Subscriptions

Beyond margin improvement, installed base management enables OEMs to establish recurring revenue streams. Service contracts, subscription models, and performance-based agreements are increasingly prevalent. For complex equipment, long-term maintenance contracts can become a primary revenue source, providing predictable income over the asset’s lifecycle. This shift from one-time sales to ongoing service relationships enhances revenue visibility and financial stability. And when the customer is ready to upgrade or replace, there is a go-to partner.

McKinsey highlights the rise of service-as-a-solution models and the monetization of data generated by connected equipment. These approaches not only increase customer value but also expand the OEM’s share of the service profit pool. BCG notes that leading companies in the aftermarket space are more successful at securing long-term service agreements, which further stabilize revenue and deepen customer relationships. As a result, recurring revenue models are now central to the financial strategies of forward-thinking manufacturers.

Lower Capital Expenditure Compared to New Production

A third key financial advantage is the lower capital expenditure required to expand aftermarket services compared to scaling new equipment production. Building new production lines or facilities typically demands significant investment and carries high risk, especially when demand is uncertain. In contrast, growing the aftermarket business – through maintenance, upgrades, or software-driven enhancements –  requires far less capital and can often leverage existing infrastructure.

McKinsey points out that the increasing prevalence of firmware updates and remote diagnostics is reducing the need for large, upfront investments in physical assets. This capital-light approach allows OEMs to allocate resources more efficiently, achieve faster returns on investment, and maintain operational flexibility. In environments where capital is constrained or market conditions are volatile, focusing on the installed base offers a prudent path to growth.

Conclusion

The financial advantages of installed base management are clear: higher profit margins, stable and recurring revenue, and lower capital requirements. For OEMs, this strategy is not just about defending market share – it’s about building a more profitable, resilient, and future-ready business. By investing in aftermarket services and recurring revenue models, manufacturers can unlock new sources of value and position themselves for long-term success.

Interested in actionable strategies to maximize your installed base value? Explore our latest resources on aftermarket service innovation and recurring revenue models.